Did you know that the US Senate designated the week of October 21, 2012 as National Save for Retirement Week? You might have missed this headline in the media frenzy surrounding the final weeks of the presidential election, the World Series, and a hurricane barreling up the east coast. Yes, in fact, Washington was gripped by a rare display of bi-partisan cooperation as the two sides of the aisle were able to agree that Americans are woefully unprepared to meet the financial obligations of retirement.
Senate Resolution 555 states:
Whereas recent data from the Employee Benefit Research Institute indicates that, in the United States, less than 3⁄5 of workers or their spouses are currently saving for retirement, and the actual amount of retirement savings of workers is much less than the amount needed to adequately fund their retirement years;
How large is the retirement savings shortfall? Reputable academic surveys calculate the amount that Americans are short for their financial needs in retirement at over $6 trillion. No surprise that Americans are deferring retirement and extending their income earning years to help offset the shortfall. Just last week the Pew Research Center released a Pew Social & Demographic Trends report based on a national survey of attitudes about retirement. Nearly four in 10 adults say they are “not too” or “not at all” confident about having sufficient income and assets for retirement. In early 2009, only 25% of respondents felt that way. What is particularly noteworthy about the survey results is the growing anxiety expressed by younger US workers:
- Of those between the ages of 36 and 40, 53% told Pew Research that they were “not too” or “not at all” secure about retirement savings. Only about a third of those 60 to 64 years old fall into those lackluster categories and even fewer (26%) of those 18 to 22.
- As little as three years ago, a mere 18% of 36- to 40-year-olds expressed similar woes. The authors of the report, Rich Morin and Richard Fry say “the median net worth of this group has fallen at a far greater rate than for any other age group both in the past 10 years and since the beginning of the Great Recession.”
At HelloWallet we know that allocating savings into retirement savings accounts is an essential component to retirement security, but the solution is more than about growing your retirement nest egg. Sound financial planning is about preparing for the many life events (foreseen and unforeseen) that we confront during our pre-retirement years. In fact, lack of adequate preparation for these events is a primary reason why so many US workers are forced to invade their retirement accounts years before they leave the workforce. Based on the impact that we have had on our members, we can report that:
- 20% – About 20% of the population reduced their monthly 401(k) contribution, so that they could instead use that money to save for emergencies, which will reduce the likelihood that they will have to take out a 401(k) loan or terminate their employment to cash-out their balance
- 50% – About 50% of the population made no change to their 401(k) contribution and instead focused on improving their everyday money management decisions, paying off debt to budgeting to saving for other goals
- 30% – About 30% of the population increased their 401(k) contributions, helped by guidance from HelloWallet to find the money in their budget to afford additional savings